Legal and Ethical Environment of Business
Assignment Two
Multiple Choice Section:
1. Maria posted several signs in the neighborhood offering $50 for the return of her lost cat. Dave calls to get a description of the cat and tells Maria, “I’ll look for your cat.” A contract is formed by Dave’s call to Maria.
a. True
b. False
2. A contract to sell five acres of land is governed by Article 2 of the UCC.
a. True
b. False
3. Alice makes a material misrepresentation of fact to Betty, and based upon the misrepresentation, Betty enters into a contract. Alice now thinks that the contract is not fair to her. The contract is voidable at Alice’s option.
a. True
b. False
4. A contract to sell life insurance is covered by Article 2 of the Uniform Commercial Code.
a. True
b. False
5. Samuel Tate enters into a contract with Bill Smith under the terms of which Smith is to pay Tate $7,000 and Tate is to build a garage, repair a boat, and build a doghouse. If the doghouse has not yet been built, which term describes the type of contract in existence?
a. Quasi contract.
b. Executed contract.
c. Illusory contract.
d. Executory contract.
6. Pedro receives an unordered three-CD set in the mail accompanied by the statement, “This CD set can be purchased for the special price of $19.95. If the CDs are not returned within two weeks they will be deemed accepted and the payment is due within 30 days of receipt of the CDs.” Pedro is under no obligation to either return the CDs or to pay for them; he may use them or give or throw them away.
a. True
b. False
7. If Bill tells Sara that he will give her two days to decide if she wants to buy his car, he cannot sell it to anyone else during that time.
a. True
b. False
8. An acceptance that contains terms different from or additional to those in the offer receives the same treatment under the common law and under the UCC.
a. True
b. False
9. If there is no time specified for the acceptance of an offer, when does the offer terminate?
a. After 48 hours from receipt of the offer.
b. After two weeks from dispatch of the offer.
c. After 30 days from receipt of the offer.
d. After a reasonable period of time, which depends on the circumstances.
10. Albert read ElectroCorp’s ad in the local newspaper, advertising a music system for $89. Albert rushed to the store to buy the system only to be told by the salesperson that the ad was a misprint and the price should have been $289. Albert gave the salesperson $89 plus sales tax and demanded the music system.
a. The ad is a firm offer by the merchant, and the music system must be sold for $89.
b. The ad is a contract and the store must abide by terms stated in the contract.
c. The store must accept the price stated in the ad, but only if Albert has a copy of the ad with him.
d. Albert is merely making an offer to ElectroCorp to buy the music system for $89 plus sales tax.
11. Wes, who is an art collector, offered to buy a print from Le Monde Gallery. Le Monde balked at the price, sending Wes a letter of rejection. That day, it discovered that the print was not as highly valued as originally thought. Le Monde immediately telephoned Wes to accept his offer. Is there a contract?
a. Yes, since the acceptance was received before the rejection.
b. No, because the rejection was effective upon dispatch.
c. No, because the rejection terminated the offer.
d. Yes, because the acceptance is always effective upon dispatch.
12. If Anna Laura, in return for the payment of $200 to her by Catherine, gives Catherine an option to buy Jesse, a prime Arabian mare, at any time within the next 14 days at a price of $50,000, Anna Laura’s offer to Catherine is:
a. a revocable option contract.
b. an irrevocable output contract.
c. irrevocable for the 14 days covered by the option.
d. a requirements contract.
13. Which of the following would NOT be a merchant under Article 2 of the UCC?
a. The owner of a hardware store which sells paint.
b. A car mechanic who fixes used cars and sells then in his spare time.
c. A person who inherits three speedboats and wants to sell them to buy a car.
d. Two of these are true.
14. Michelle’s Boutique places an ad in the Sunday paper for beautiful, top-of-the-line designer suits for $3.00. Alice sees the ad in the paper and goes to the store to stock up on business suits for her new job. Michelle apologizes for the misprint. Alice has just finished a class in contract law and insists that the store sell her five suits for $15. Alice threatens to sue Michelle for breach of contract.
a. This is a valid contract based on commercial reasonableness.
b. The ad in the newspaper is an offer to sell, Alice accepted the offer, and there is an enforceable contract.
c. The ad in the newspaper is a solicitation seeking offers, but is not an offer to sell; therefore, Alice will not be able to successfully sue for breach of contract.
d. None of these.
15. Arnold has offered to take Bob into his accounting firm as a partner upon payment of $5,000 cash. In response, Bob says, “I’ll give you $3,000 cash now and I will pay you the remainder in two months after I see whether things are working out as a partnership.”
a. Bob has made a counteroffer and hence there is no contract.
b. Bob has rejected the terms of the original offer, but there is still a contract.
c. Under Article 2 of the UCC, Arnold is a merchant making a firm offer. Hence there is a contract.
d. Any indefinite provisions in the contract between Arnold and Bob will be supplied by Article 2 of the UCC.
16. Marilyn read an ad in the school newspaper offering a $1,000 swimming scholarship to anyone who could swim 500 laps in the school pool. Marilyn called the advertiser and began swimming. She has reached lap number 460; she feels great and is sure she can make it all the way. The advertiser:
a. may revoke the offer since there has not yet been an acceptance.
b. may not revoke the offer since Marilyn has already accepted it.
c. must permit Marilyn the opportunity to finish her attempt to swim the 500 laps, or pay damages if he interferes with the completion of the laps.
d. must pay Marilyn $920, because she has performed 92% of the offer.
17. Marjorie has been cared for by her family physician for 35 years. She decides to assume the mortgage on his new clinic. The contract is automatically invalid because of undue influence.
a. True
b. False
18. Fraud in the inducement will render an agreement void.
a. True
b. False
19. Matt sells bikes at a local discount store. To encourage Bob to buy a more expensive model than he originally contemplated, Matt tells Bob, “This is the most awesome bike money can buy at this price. You can expect lots of riding pleasure.” Based on this statement, Bob buys the bike. A week later, before his bike is fully paid for, Bob sees a far superior bike for a lower price at another store. Bob can avoid his contract with Matt because of fraudulent misrepresentation.
a. True
b. False
20. Ben and Kate had been negotiating Ben’s employment contract in conversations over the phone for a couple of weeks. Finally, they agreed on some contract terms. Kate offered to create a draft of the contract for Ben to read over. On the same day, Ben was fired from his job. Afraid he would be unemployed, Ben signed Kate’s draft without reading it. In this example, Ben:
a. can avoid the contract because of mistake by failure to read.
b. can avoid the contract because he was the victim of economic duress.
c. cannot avoid the contract because of economic duress or failure to read.
d. may rescind the contract because of unilateral mistake.
21. Adam wants to buy a six-passenger car. The salesman tells him that the two-seat sports car Adam sees on the car lot would be just perfect for six people. Adam test drives the care and then buys it.
a. Adam has a valid cause of action for fraud.
b. Adam is not entitled to relief based on fraud because he was not justified in relying upon the salesman’s representation that the car would seat six people.
c. The element of scienter is missing in this fact situation.
d. The salesman is in a confidential relationship with Adam.
22. Steven has a typed copy of a contract, which he would like to have Thomas sign. Thomas, who needs glasses to read typing, doesn’t want to sign until he has read the document, but Steven convinces Thomas to sign it anyway, because it is a “standard” contract for this type of situation. Is the contract which Thomas signed binding upon him?
a. No, because he did not read it.
b. No, because he entered into it based upon fraud in the execution.
c. Yes, because he has made a unilateral mistake of law.
d. Yes, because he was negligent in not ascertaining its contents.
23. Dana gives care to Marnie’s dog when Dana finds Marnie’s dog ill on the side of the road. After Marnie locates her dog, Marnie promises to reimburse Dana for the cost of treating the dog. Marnie’s promise is binding, because there is a bargained-for-exchange.
a. True
b. False
24. The UCC provides that a contract for the sale of goods can be effectively modified without new consideration, provided the modification is made in good faith and both parties intend to modify the contract.
a. True
b. False
25. Alice says to Brian, “If I decide to buy a word processor next year, I will buy it from you.” This is an example of:
a. an illusory promise.
b. past consideration.
c. the pre-existing duty rule.
d. good consideration.
26. Jason’s mother would like him to go to college, so in June he enrolls at the local university. He also quits his job and tells his mother his plans to take classes. His mother says, “I’m so happy that you are going to college that I want to pay for your books.” Jason then sends her a bill for $485. Jason’s mother’s promise is:
a. enforceable, because Jason returned to college.
b. enforceable, because Jason is giving up the right to do something else.
c. unenforceable, because it is a unilateral contract.
d. unenforceable, because Jason had already enrolled in school when she made the statement that she wanted to pay for his books, and there is no consideration.
27. Edward, an engineer, is working on a new design for some highly technical equipment which Martus, Inc. hopes to market within the next five years. The employment agreement between Edward and Martus states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with Martus, Inc. This agreement is void and unenforceable because, although Martus is a very specialized company, it would make it difficult for Edward to find other employment.
a. True
b. False
28. Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?
a. Void, as an illegal violation of a statute.
b. Valid, as a reasonable restraint on trade.
c. Unenforceable, as a violation of public policy.
d. Binding, as fair protection.
29. John operates a small repair business and is in desperate need of a certain type of building material. He obtains the material from a large corporation, but is charged a grossly unreasonable price and is forced to buy other material he does not need. In view of the buyer’s unequal bargaining power and unreasonable terms of the contract, this may be a case of:
a. in pari delicto.
b. partial illegality.
c. substantive unconscionability
d. procedural unconscionability
30. A ____________ is a law establishing a maximum rate of permissible interest for which a lender and borrower of money may contract.
a. wager
b. usury statute
c. Sunday statute
d. None of these.
Essay Questions:
1. It is common for transactions to involve multiple contracts. Identify at least four contracts that might be involved in Costello’s sale of land to Johnston. (11 points)
2. On June 1, Edward visited a bicycle sales and service center. Edward a used bike he liked and was told by the dealer that he could have the bike for $100 cash. Since Edward needed a few days to get the money, Edward got a signed, written statement by the dealer that Edward could buy the bike for $100 at any time on or before June 15. On June 10 Edward came to the dealer with the money, but the bike had been sold to another customer. Was the dealer under any obligation to Edward to keep this offer open June 15? Give legal reasoning for your answer. (11 points)
3. Identify whether the following statements could result in actionable fraud and why or why not.
a. A statement by an art dealer to a potential buyer. “I think this painting is underpriced because the artist is now gaining national recognition.”
b. A vacuum cleaner salesperson’s statement, “This machine is the best available for the cost.”
c. A city councilman’s statement to a fellow councilman that, “If we vote for that action, the resulting consolidation will be illegal.” (15 points)
4.
a. How does Article 2 of the UCC modify the common law of contracts with regard to consideration?
b. Explain how output and requirements contracts differ from illusory promises. (11 points)
5. Discuss the concept of ratification and the ways in which a minor may ratify a contract. Give an example. (11 points)
6. Identify at least six situations in which the parol evidence rule does not apply. (11 points)
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